But what should the price be?

A little story about pharmaceutical drug prices in Ireland. The interesting bit being that no one seems to have asked what I consider the only interesting question. What should the price of Zarontin be in Ireland? Without some idea of what that should be, or even some method or set of rules to work it out, we can’t say anything useful about the story itself, can we?

Sure, we’ve the usual stuff, how dare people make a profit out of life saving medicines – the answer being because profit is what makes life saving medicines available – and all that. This is long out of patent so that’s nothing to do with it. But the firm that makes it has hiked the price in Ireland. Why, and is this justifiable?

A leading pharmaceutical company increased the cost of essential epilepsy medicine by more than 1,300 per cent and sought price rises of up to 3,000 per cent to maintain other drugs in the Irish market, The Times can reveal.

Essential Pharma, a US company, wrote to the HSE in February last year saying that it required a substantial price rise to “ensure the continued supply” in the Irish market of Zarontin, an anti-convulsant used to treat epilepsy. Internal HSE memos seen by The Times show Essential Pharma sought to increase the price of the drug from €3.56 a pack to €50. If the drugs were discontinued, the company said they could be imported from the UK “where it was deemed necessary to maintain a patient on the same therapy”.

Well, hmm, that does look greedy, doesn’t it? But wait, how much was this all about?

As epilepsy is classed as a long-term illness, the state would keep paying the higher cost of Zarontin year after year, she said. The HSE said the cost of the rise to the state was €284,600 a year.

Everyone who takes this drug will be doing so on prescription. So, what we can actually say is that the Irish market for it is some €300,000 a year or so – even after the price rise. This accords with earlier information:

Pharmaceutical company Pfizer is discontinuing the production of its Zarontin capsules, a drug highly effective in treating those with absence seizures and which has been available in Ireland for 30 years. Absence seizures – or petit mals – affect only a small percentage of epileptics; an estimated 300-400 across the country.

A few hundred people across the country, at a cost of a few hundred thousand a year. Yes, we’re going to pay this, obviously, and we should do. We’re not happy about the price rise, obviously enough, but now think about this a bit.

The producer – or at least the supplier – is saying that if they don’t get the price rise then the same drug will just be imported from England. The implication of that is that they’re either making, or at minimum packaging, the drug in Ireland currently. In the absence of the price rise revenue would be around €70,000 a year. which isn’t enough to support a production line doing anything at all with drugs now, is it? Wouldn’t even cover, likely enough, the costs of getting inspected to be able to produce and or package the drug.

So perhaps the price rise is justified after all? It’s easy enough to look at the price per pill but what about the overheads of being there at all?

Note also that the government was given a choice. Pay up or just import it. Government obviously though that Irish epileptics should be treated with Irish drugs. That may or may not be the correct solution.

OK, we can see the outrage about the price rise. But we’re still left with that basic question. What should the price be? How much does it cost to produce and or package in one country just for 400 people a year? And shouldn’t the costs of the pills reflect those overheads?

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  1. Why did they decide not to import from England? surely if it’s the same drug to the same spec that would make more sense? Or is it because Ireland know that they wont be allowed to import drugs from England after brexit because reasons and so have to maintain manufacture in Ireland?

  2. The Irish market is “€300,000 a year” with “300-400” patients. If the government of Ireland imposes any labeling and registration requirements, even if they are identical to those in other jurisdictions, the company would have to do so much work (done by professional experts, to ensure it was done correctly and legally) that there would be no profit. The company cannot import the drug to Ireland, though happily, Ireland can import it itself, from a nearby market of more substantial size. Or, if it’s true that the drug “is long out of patent,” import a generic equivalent.

  3. Spike, an out of patent medication can be supplied at the price of paracetamol plus the difference in manufacturing costs. The regulatory overhead for such meds is basicly the same.

    This looks like the same unintended consequence of regulation that Shkreli exploited – that you can end up back in a monopoly supply situation and no way to get out of it.

    Just a thought, but even ultra libertarian market fundamentalists accept that monopolies should suffer price regulation…

    • I do not even accept that this was a monopoly. Shkreli is universally hated for changing the prices of various drugs he was entitled to change the price of, despite the risk that this would draw others into the market. He is now in prison for securities fraud unrelated to the pricing of pharmaceuticals. People in public office wish they could regulate to the point of extinguishing all but one supplier of a good, and avoid the consequences.

      As I posted elsewhere, there is no amount of socializing you can do to correct the effects of socialism. You must socialize everything.

      • Increasing the price cannot draw new competitors in because of the way the regulation works.

        Shkreli’s trick was not just to become the sole supplier, but to prohibit supply for the purposes of clinical trials. That made a bioequivalence trial, an inexpensive and classic way to get a new generic on market, impossible. Effectively any would-be competitor would have to register and license the product as a completely new entity. At perhaps 100 times the cost of the bioequivalence route.

        No one is going to do that when Shkreli can simply cut his price again the minute the competitor arrives on market. I am sure he was reckoning on that little scam only lasting a few years.

        No one is advocating more socialising of stuff – it’s the regulations that cause this impasse and they will be changed. If the approach taken is price controls that’s not ideal, but it will work.

        Shkreli’s actions were pure greed. It’s this kind of person that gives market capitalism a bad name, and the Randian fringe of Libertardianism would do well to condemn actions like this, rather than praise them.

  4. Some years ago one of our stupid lefty Canadian politicos was bedeviling an American businessman in some public forum. The businessman’s company sold the same goods in Canada as the USA, but at a higher price, even counting exchange rates. Autos I think.

    The politico aggressively demanded an answer to the question of why on earth this man’s company charged Canadians more for the same product

    The answer: Because they’ll pay it.